Thursday, September 25, 2008

This article is from the Saudi Aramco Web site. It's in their news section, but they have one of those dynamical-type sites that don't let you link directly to articles. So I decided to "liberate" it:

DHAHRAN, September 22, 2008 -- Ghawar remains the world’s largest oil field 70 years after its discovery. Its size and continuity were not initially apparent, but a series of early exploration wells, now called the Magnificent Five, put the pieces of the puzzle together.

A 3D rendering of the Ghawar reservoir shows the Magnificent 5 discovery wells.

Amid the important commercial oil discoveries of Dammam (1938), Abu Hadriyah (1940) and Abqaiq (1940), geologists were exploring surface features to get a better picture of the potential of the Eastern Province.

While mapping the surface outcrops, geologists Ernie Berg and Max Steineke excitedly identified a broad, low-relief dome (called an anticline). Subsequent exploration established that this En Nala anticline at Haradh continued northward all the way to Ain Dar and Shedgum and was filled with oil.

Ghawar helped catapult Saudi Arabia into its role as the world’s leading oil producer. The super-giant field is 280 kilometers in length and consists of five contiguous oil fields from north to south: Ain Dar, Shedgum, ‘Uthmaniyah, Hawiyah and Haradh.

In 1995, a comprehensive 3D seismic campaign was conducted across the Ghawar field. The equipment used is a stark contrast to the early exploration team shown in the left photo.

Ain Dar No. 1

After World War II and with the resumption of drilling, the most obvious location to resume wildcat drilling was the Ain Dar structure because of its proximity to producing facilities at Abqaiq. Ain Dar No. 1 was drilled in 1948 and flowed oil to the surface during testing. It was put on production in early 1951 and is still producing today with the original well casings.

This well has been producing for more than 58 years with the aid of best-in-class reservoir management practices. It has produced 152 million barrels of oil and is still producing 2,100 barrels per day (bpd).

Haradh No. 1

In 1949, Aramco engineers initially wanted to drill a step-out well, Ain Dar No. 2, about 12 km to the south of Ain Dar 1. Instead, a second wildcat was drilled 185 km to the south at Haradh. At that time, no one openly suggested that the En Nala anticline would prove to be one continuous field 280 km long and up to 30 km wide. That possibility became very real when the Haradh No. 1 wildcat struck oil in 1949.

The Haradh well was nearly 200 km south of Ain Dar production facilities and, therefore, was not brought onstream until 15 years later. Haradh No. 1 was put in production in 1964 but shut down during the mid-1980s because of low demand. In 1990, after acid stimulation, it resumed production.

Today, 44 years after its first production, Haradh No.1 has produced more than 24 million barrels of oil and continues to produce at a rate of 2,300 bpd.

‘Uthmaniyah No. 1

‘Uthmaniyah No.1 was important in establishing that the En Nala anticline was oil-filled between Ain Dar and Haradh. This wildcat well was successfully drilled and tested in 1951. As with the other Ghawar wells, oil gravity was in the range of 33 degrees API (Arabian Light Crude).

‘Uthmaniyah No. 1 was brought onstream in 1956 and has since produced more than 20 million barrels of oil. Located on the eastern flank of ‘Uthmaniyah, close to the water, this well was the first of the discovery wells to employ water shutoff techniques to limit water production.

Shedgum No. 1

The Shedgum No. 1 discovery well was drilled in 1952 to delineate the En Nala anticline to the east of Ain Dar. The well struck oil in the Arab-D carbonate and was later brought onstream in 1954.

In 1968, the wellbore rock matrix was acidized to improve the flow of oil from the carbonate formation. In 1989, liners were run across the open hole to address future water encroachment.

Recently, the oil production rate was enhanced greatly for Shedgum No. 1 by recompleting the well with a horizontal sidetrack complemented with inflow control device (ICD) technology. Not only was the oil rate increased to more than 3,700 bpd, but the water cut has also been lowered significantly.

Shedgum No. 1 has produced more than 98 million barrels of oil over the past 55 years, and the application of new technologies will keep it producing for many years to come.

Hawiyah No. 1

The final discovery well of the magnificent five was Hawiyah No.1, which confirmed that Ghawar held oil between ‘Uthmaniyah and Haradh. Drilling was completed in 1953, and the well was put onstream in 1966, when the Hawiyah Field was developed.

The well received an acid stimulation treatment in 1977. With Saudi Aramco’s superior reservoir management practices, Hawiyah No. 1 has produced 51 million barrels of oil, and continues to produce today at 4,600 bpd.

Reservoir management

Since the discovery of the Ghawar field in 1948, Saudi Aramco has implemented best-in-class reservoir management practices and leading technologies that have evolved over the years. As a result, the Magnificent Five have demonstrated extraordinary performance with extended lifecycles and outstanding oil recovery.

One of the first reservoir management initiatives was gas reinjection in Ain Dar. In 1958, King Saud ibn Abdulaziz inaugurated the gas injection facilities in Ain Dar. The primary purpose of the program was to reinject produced gas to sustain reservoir pressure. Gas injection began in 1959 and continued for 20 years.

Water injection began in Ghawar in 1964 to provide additional pressure support — to maintain reservoir capacity to push oil to the surface. That technology, known as secondary recovery, provided a stepwise improvement in pressure support and began the displacement of oil from the outer edges of the Ghawar field toward the central regions to sustain oil production, as demonstrated by the phenomenal performance of the discovery wells.

In 1995, a comprehensive 3-D seismic campaign was conducted across the Ghawar field. The seismic profiles provided vital information on reservoir structure and distribution of fractures, guiding development and recompletions across Ghawar. That information, for example, was used to guide the placement of the horizontal well trajectory for Shedgum No. 1.

The Ghawar discovery wells, Ain Dar No. 1, Shedgum No. 1, Haradh No. 1 and Hawiyah No. 1 are still producing today with the original well casings. That speaks to the quality of workmanship and materials that went into the original wells.

Altogether, the Magnificent Five have produced nearly 350 million barrels of oil. There’s no telling how much more they will produce — as the end of their story is not yet in sight.

Sunday, September 21, 2008

I hate it. Some are calling it economic treason. Others a de facto coup. Karl Denninger calls it "The Mother of All Frauds" and warns that the price tag will be much bigger than they're letting on.

One of the denizens of The Oil Drum, Jerry McManus, pointed out a book called Since Yesterday. It's an account of the Great Depression, written by someone who lived through it:

The theoretically necessary adjustment became a practically unbearable adjustment.

Therefore Hoover was driven to the point of intervening to protect the debt structure -- first by easing temporarily the pressure of international debts without canceling them, and second by buttressing the banks and big corporations with Federal funds.

Thus a theoretically flexible economic structure became rigid at a vital point. The debt burden remained almost undiminished. Bowing under the weight of debt -- and other rigid costs -- business thereupon slowed still further. As it slowed, it discharged workers or put them on reduced hours, thereby reducing purchasing power and intensifying the crisis.

It sure sounds like we're following in Hoover's footsteps.

But...isn't Bernanke supposed to be an expert on the Great Depression? How could he make this mistake?

The summer of 1932 marked the trough for US economic growth, which was well in the midst of the Great Depression starting in 1929. Global sovereign defaults were well underway by 1931. Turkey, China, Bolivia, Peru, Cuba, Brazil and Colombia all defaulted on their debts in 1931. Hungary, Yugoslavia, and regrettably Greece defaulted in 1932. In 1933, Austria and Germany joined the club. And, by 1934, all debtor countries except Argentina, Haiti, and the Dominican Republic had suspended debt service. Are we to accept the conventional wisdom that a mistaken, overly restrictive monetary and fiscal policy in the US created the Great Depression and led to these global sovereign defaults? It seems equally, if not more likely, that an imbalanced global trade system jarred by restructuring in Germany and Great Britain, and by prior revolutions against free markets in Russia and China may have been the initial and crucial culprit. The global constriction of trade was the result of several dependent and independent political and economic upheavals during the decade following World War I. It is a massive presumption to state that a more stimulative Federal Reserve (a la 2001-2002) could have prevented the course of events in the early 1930s.

The lessons for present-day policymakers are stark. Recent anti-deflationary policy in Japan, the US, and Europe are all predicated upon the conventional analysis emanating from the Great Depression. We feel these are mistaken and misguided.

(Yes, the date on the paper is 2006. They predicted this two years ago. A lot of people saw it coming.)

This is a freakin' disaster. Dunno how much good it will do, but should you feel inclined...

Fill out your state and zip+5, and you will be directed to the web page of your representative. You can e-mail him or her, or get information to write or phone. (Which is probably more effective than e-mailing.)

What causes societies to collapse? There are a myriad of theories: resource depletion, high taxes, environmental degradation, moral flaws in the citizens of the society, natural disasters such as earthquakes or volcanos, and more. In The Collapse of Complex Societies, Joseph Tainter argues that none of these is an adequate explanation.

Tainter is not a flake or a doomsayer. He is an archaeologist, and The Collapse of Complex Societies is aimed at academic audiences. It's often used as a textbook for anthropology classes. And he does not believe our society is on the brink of collapse.

After reading his book, I'm not sure I agree with him. According to Tainter's research, everything from spiking oil prices to failing public schools to the increasingly bitter political divide may be signs of impending collapse.

The Collapse of Complex Societies provides terrific insight into the reasons complex societies arise...and why they collapse. It also provides some hints about what it might be like if our own society collapses, based on what happened when other complex societies collapsed.

Tainter claims that the proper basis for understanding complex societies is an economic one. The basic premise:

1. Human societies are problem-solving organizations.

2. Sociopolitical systems require energy for their maintenance.

3. Increased complexity carries with it increased costs per capita.

4. Investment in complexity as a problem-solving response often reaches a point of declining marginal returns.

So, in his view, complex societies arise as efficient solutions to problems. At first, relatively little investment in complexity yields great benefits. But eventually, diminishing returns kicks in, and greater and greater investment produces less and less benefit. Finally, the point is reached where investment in complexity can no longer yield any increase in benefits. Collapse becomes increasingly probable. At that point, a crisis the society easily weathered earlier in its history - a military loss, drought, resource depletion, etc. - is enough to cause collapse.

Why do marginal yields always decline? That is, why is it that we always get less and less return on greater and greater investment? Because the lowest fruit is picked first. The most accessible oil is pumped first. Teaching someone to read is cheap and has great benefits; getting them a PhD is expensive, and provides far fewer benefits for the cost. The most arable land is farmed first; expanding farms to less ideal territory will provide lower yields for the cost.

It is possible for a society to avoid collapse, by getting control of a new source of energy, either by technical innovation or by conquest. Eventually, however, it becomes impossible to keep doing this, because of declining marginal returns on whichever strategy you are pursuing (whether conquest, like the Romans, or technological innovation, like the Maya).

Tainter argues that we are already facing declining marginal returns, and provides numerous examples. Among them:

Agriculture: To increase world food production by 34 percent (between 1951 and 1966), it took a 63% increase in money spent on tractors, a 146% increase in money spent on nitrate fertilizers, and a 300% increase in money spend on pesticides. To get another 34% would take even more money.

Medicine: Despite the fact that we are spending more money on health care and medical research than ever, the American lifespan is not increasing much. The easy fixes - vitamins, vaccines, sanitation, etc. - have already been done. Now, we are struggling just to keep lifespan from decreasing (due to new challenges like AIDS).

Science: Most of the great work of science was done years, even centuries ago. Many of the greatest contributions to science were made by people without formal training. But the day is past when monks growing peas or people flying kites in the rain can make significant contributions to science. The general knowledge, which provided the greatest benefits, is already known. The specialist knowledge remaining to be discovered requires expensive education, for relatively little return. Something like 90% of all the scientists who have ever lived on earth are alive right now, yet technological innovation is slowing.

Oil: In 1950, one barrel of oil's worth of energy could get you 100 barrels in return. Now, it's more like 1:10 in the U.S., 1:30 for Middle East oil shipped here. That sort of decline applies to most resources: coal, copper, natural gas, etc.

R&D: Technology has saves us in the past; can it save us again? Probably not. Analysis shows that an increase in spending on R&D of 4.2% yields an improvement of only 2%. At that rate, even if every one of us becomes a scientist or engineer, we'll be losing ground.

Government: Increasing complexity means increasing bureaucracy, and all the expenses that entails. Generally, it means higher taxes. At first, the benefits of complexity - roads, schools, defense, public works - are so great that people don't mind paying taxes. But as complexity increases, taxes rise, and the local benefit decreases. The government must spend resources on enforcing compliance. Generally, the tipping point is about 20% - which we're past.

Does Tainter think we are facing imminent collapse? No. There's a fifth concept, to add to the four above:

5. Collapse occurs, and can only occur, in a power vacuum.

Even when a society is past the point of diminishing returns - when economically, they'd be better off not investing in more complexity - there is a situation where they cannot collapse. That is when there is a group of societies, of similar complexity, in competition with each other. No one can collapse, because if they do, they'll be taken over by a neighbor. Collapse, when it comes, will be a group affair. No one can collapse unless they all collapse at once. (Which is what happened to the Maya.)

That is the reason Europe did not collapse long ago, and that is the reason the next collapse will be a global one. A "powerdown" is impossible in the current political climate.

Tainter's discussion of past collapses was fascinating, and I couldn't help wondering if they might be hints of our own future. Complex societies ensure their existence by two methods: legitimization, and coercion.

Legitimization can involve nonmaterial elements (the emperor is a god, democracy is the best way of government). But no society can continue to survive unless it provides actual material benefits. The people must be shown that their taxes are benefitting them more than they are hurting. So, even while Rome was going bankrupt, they kept increasing the public dole. They had to, to maintain their legitimacy. Eventually, one out of three people was on the dole.

Coercion is another method, but it, too, is expensive. Higher and higher taxes are demanded, with greater and greater punishments for not paying. The state may control where you can live, what your occupation is, what you can say. People get more rebellious, and more resources must be allocated to social control. The wealthier areas that can make it on their own may try to pull away; the government won't let them, because it needs their production.

It's likely, as vital resources such as petroleum, water, even food, run out, our governments will use both methods. Taxes will rise, and so will handouts to the poor. We'll lose freedoms, as the government cracks down.

Given that possible vision of the future, collapse seems almost preferable. Indeed, Tainter argues that collapse is not necessarily catastrophe. Complex societies are a relatively new development in human history. They are what is unnatural, so collapse would be returning to a more natural state. And research shows that collapse does in fact yield benefits. Smaller kingdoms were more effective at repelling barbarian invasions than the Roman empire. Nutrition was better after the Mayan collapse than it was before.

The drawback, of course, is the huge population drop that accompanies collapse. An 80%-90% loss is not unusual. While in the old days, those extra people may have simply migrated somewhere else, that's not possible in today's world.

So what will happen if our society collapses? Some key points, taking the past as a guide:

Real Estate: Though survivalist types think salvation is a homestead in the country, that wasn't the case for Rome, or for the Maya. In both cases, people moved near the cities in the decades before the collapse. Taxes grew so high in Rome that many farmers simply abandoned their land. It was easier to get food in the cities than on the farms that grew it. Many laws passed involved ways to tax abandoned land. Eventually, Rome passed laws ordering that the sons of farmer be farmers themselves...then had to spend more resources on enforcing those laws.

Less is known about the Maya, but they, too clustered closer to the cities as the end approached. Likely this was because isolated farms and villages were vulnerable to raids. Too many people, not enough food, and no way out leads to only one outcome: warfare.

Population Growth: Societies that collapsed often suffered a leveling of population growth before the collapse; some even had decreases in population. This was seen as a serious social problem for the government, since it needed new citizens to provide labor and pay taxes. In Rome, laws were passed setting up state orphanages and offering tax incentives for having kids. Among the Maya, women were favored over men. While male skeletons grew stunted and diseased as collapse approached, the female skeletons remained as large and healthy as ever. Neighboring societies of the time honored reproducing women, and the evidence suggests the Maya did as well, feeding the females at the expense of the males.

I can't help but be reminded of that politician in Japan, who suggested cutting off social security benefits to women who don't have at least one child, or Pat Buchanan, who wants to end abortion and birth control, in part because it will increase the number of taxpayers.

Currency debasement: Collapsing societies tend to suffer from massive inflation. Even though the government knows it shouldn't just print more money, it can't resist when pushed into a corner. You have to pay the army and the civil servants. This is a way of pushing debts into the future, much as our deficits do. Because, as Tainter says, "the future can't protest."

Who suffers: The wealthy suffered last when Rome collapsed. First the poor suffered, then the middle class, and only at the end, the wealthy. But it was the opposite when the Maya collapsed. The elite disappeared, and only the peasants remained. In some areas, there are signs the remaining population tried to continue the rituals and building that had gone before, but simply did not have the knowledge. Those who did were obviously gone.

After the collapse: Sometimes a society recovers, but often, it never again reaches the complexity it once had. The Maya did not maintain their irrigation systems or raised beds. Either the land was too exhausted to make it worthwhile, or they had no inclination to go back to the way they were, once it was proven unfeasible.

Another point from the book that I found interesting and possibly relevant: scanning behavior.

When a society is facing diminishing returns, something Tainter calls "scanning behavior" appears. People become dissatisfied; ideological strife intensifies. The entire society starts looking around for a better way. Segments of society may adopt foreign ideologies or ways of life. Some of these may be perceived as subversive, while others are the height of fashion. Taxes rise, as the government invests more in R&D, trying to find a better way.

Once a society reaches the point where investments in complexity no longer pay off at all, scanning behavior may cease altogether. The government enforces strict behavioral controls, in hopes of increasing efficiency. And they can no longer afford R&D.

I'm not sure if I find Tainter's book encouraging or not. One the one hand, he suggests that a soft landing is more likely than a sudden dieoff; the collapses he studied took place over decades. On the other hand, the years leading up to collapse tend to be very unpleasant, with brutal government control, high taxes, conscription, anarchy, banditry, widespread malnutrition, etc. Tainter expects that before collapse, we will be pouring a huge percentage of our GDP into R&D, trying to find a technology that will save us. That means the standard of living will fall, since there will be less to spend on other things.

But maybe engineering will be a growth industry, at least for few decades...

Sunday, September 14, 2008

I got a message from ING Direct today. It amounts to, "Thank you for not putting all your money in the Bank of Serta."

Dear Customer,

As we enter the final few months of 2008, I want to thank you for your continued confidence in ING DIRECT. Over 700,000 new Savers have joined us so far this year strengthening the bank and their own financial footing through our savings, home mortgage and ShareBuilder investment accounts. Despite a challenging economic climate, our Customer base is 7 million strong and growing.

The consequences of the mortgage meltdown on financial institutions and individuals continue to erode many Americans' dreams. We will continue to stress the right way to achieve home ownership – buying only as much house as you can afford and paying off your mortgage as fast as possible. In return for good credit and prioritizing home investment, ING DIRECT mortgage Customers are rewarded with exceptional rates and a transparent, direct administration process. Rather than selling your mortgage to another bank or investor the minute you get it, we keep your mortgage and service it here. Doing so gives us flexibility to find innovative solutions to help Customers keep their homes during unexpected financial downturns.

While we don’t have an Orange crystal ball, we do expect the economy to remain fragile through 2009. The best course of action for our Customers is to be disciplined: avoid splurging; identify and cut out unnecessary expenses and save for what's essential; and hedge against those tough times. We can all benefit by developing good spending habits: confront - and cut up - credit cards; use your home as a savings vehicle - not as an ATM; and establish and contribute regularly to an IRA or 401(k).

In this difficult financial environment, we work tirelessly to safeguard your deposits, mortgages and investments. Importantly, your deposits are FDIC-insured according to its limits and your investments are SIPC-protected. Our security processes are the best in the business and are in place to protect your savings from those with bad intentions. While we are constantly vigilant, we need your help. Keep passwords to yourself. Never give personal information through an email. And always install both the latest antivirus and anti-malware software on your home computer.

Thank you for your continued trust in ING DIRECT. We will not waver in our promise to provide you with great value, service, security and convenience.

Arkadi KuhlmannCEO of Savings

Pretty funny getting that advice from a bank that is constantly trying to get to me to take out a mortgage, and tells me that my "spending power" is $1,000 higher than my actual balance - because that's how much overdraft protection I have. (For a very reasonable interest rate, of course!)

Saturday, September 6, 2008

I realize I've been very fortunate when it comes to travel. I traveled a lot as a kid, because my dad's specialty is international agriculture. I hated it at the time. Being a rather geeky child, it took me awhile to adjust and make friends, and it seems whenever I had settled in, off we would go somewhere else. And sometimes it would be to places that had severe drawbacks from a kid's POV: no TV, no ice cream, sometimes no electricity or indoor plumbing. But Dad always told me that I would be grateful for the experience when I was grown, and he was right.

As an adult, I continued to enjoy travel. Not a lot by the standards of a wealthy nation at the peak of world oil production, but still, more than most people could dream of historically. I've fulfilled a lot of my travel dreams. I went to college across the country from home. I've walked along the Great Wall of China, and visited the old haunts of C.S. Lewis and J.R.R. Tolkien in Oxford, England. I've shopped in Hong Kong and seen plays on Broadway and the West End. I've explored the Inca ruins at Machu Picchu, followed the path of the Bataan Death March, and experienced spring training in Florida.

But could we be at "peak travel"? I'm seeing more and more articles about it. Here are a couple:

And of course, there are a lot of reasons why the peak oil aware should not travel. It's expensive, and peak oilers generally try to save money, not spend it. It's bad for the environment; the tourists flocking to see glaciers before they melt may well be hastening their demise. It's yet more consumption, generally by people who consume too much already. (And I really fear those "carbon credit" things are scams.)

But...I still want to travel. People are generally happier spending their money on experiences rather than things. And the idea that it might be coming to an end (at least for the American middle class) only makes it more enticing. Travel now, while you can.

There are still so many other places I'd like to visit. I'd love to see Angkor Wat. I'd like to visit Arches National Park before more arches collapse, and Gettysburg before more witness trees fall. I want to go on a walking tour of Scotland, and a bicycle tour of Provence. I'd like stay in a haunted hotel and go on a ghost tour in New Orleans before it sinks beneath the waves. (No, I don't really believe in ghosts, but I enjoy ghost stories, even though I don't believe them.) I'd love to attend a Super Bowl, and a World Series game. I want to go on an African photo safari, and tour Greece, and Tuscany. And yes, I want to visit Glacier National Park while there are still a few glaciers left.

Probably luckily for the environment, I can't afford to do all that, and would certainly not go into debt for it.